The big question Kiwi homeowners face as rates fall

Tuesday, 7 October 2025

As tens of thousands of homeowners refix their mortgages at lower rates, what should they do with the extra cash to build long-term wealth? Damien Venuto reports.

Buying their first home in late 2021 was a milestone for *Rick and his small family. They snagged a decent unit in a great neighbourhood at a price that felt manageable.

With zero help from family or friends, they felt they were on the right track. They were living within their means, chipping away at KiwiSaver, investing a little on the side, and finally enjoying life as homeowners.

But that feeling didn’t last. The property market soon tumbled from the nosebleed highs of Covid, and interest rates shot up just as fast.

Every time the Reserve Bank raised the Official Cash Rate, pushing mortgage rates and payments up, that once-affordable house felt more like a burden.

They gritted their teeth, hunkered down, and rode it out – a classic example of Kiwi stoicism.

Now, with interest rates finally starting to ease, Rick tells Stuff he’s counting down the days until he refixes his mortgage, which will free up some much-needed cash each month.

His next dilemma is figuring out what he and his partner should do with that extra money to sustainably build their family’s wealth.

Should they keep mortgage repayments the same to aggressively pay down principal? Boost KiwiSaver contributions for a bigger retirement buffer? Or explore alternative investments for better returns and a more diverse portfolio?

These aren’t small questions. Tens of thousands of New Zealand homeowners will be asking themselves the same thing in the coming months.

Reserve Bank data shows 32% of fixed-term mortgage holders will be refixing in the next six months. A further 12% of mortgages are currently on floating rates, meaning nearly half of all mortgage holders could lock in a new, lower rate soon.

“In dollar figures, you’re talking about $170 billion of mortgages refinanced in the next six months,” says Infometrics chief executive Brad Olsen.

What the Rate Drop Means for Families

Like Rick, many will be moving from rates well over 6–7% to down into the mid-4% range, creating a hefty boost to disposable income. The choices they make with this money will reshape their financial futures.

Right now, the lowest one-year rate advertised is 4.49%, which most banks will match to keep clients.

For context, the average one-year fixed special residential mortgage interest rate was 7.1% in August 2023.

According to Sorted’s calculator, a $500,000 mortgage at 7.1% costs about $775 per week ($40,300 per year). At 4.49%, that drops to $584, saving nearly $200 a week, or more than $10,000 annually.

Despite this bump in available funds, Olsen says households are still keeping a close eye on their spending, largely due to job market concerns.

“Confidence isn’t particularly strong right now,” he says. “People are almost acting as if they could become unemployed, so they’re focusing on creating a safety barrier.”

Many have become accustomed to paying that higher mortgage rate. “So they’re saying: ‘I can still afford it, and since the economy looks shaky, I’ll keep paying the higher amount because it gives me more of a buffer.’”

The Anchor: Paying Down the Mortgage

It’s telling the German word schuld refers to both “guilt” and “debt,” a fitting analogy for the mental burden of a massive mortgage.

A house is the single biggest investment most of us will ever make, and usually the centre of a family’s wealth. To use a boating analogy, your mortgage is the anchor of your wealth, keeping you stable and preventing drift into rougher waters.

David Boyle, general manager of KiwiSaver at Fisher Funds, says the instinct to pay down debt is a good one, depending on your stage of life.

If you’re a young family still owing 80% on your house, then paying down the mortgage is absolutely the right choice.

“That’s a good thing to do because you’ll pay less interest in the long run,” Boyle says. “You can almost think of it as investing in reverse.”

What he means is that you’re essentially getting a guaranteed return on any money you put toward reducing principal.

If you’re coming off a rate of, say, 6.5% and refixing at 4.49%, the interest saving is significant. You now have the choice to reduce repayments or keep them the same. By keeping them the same, you turbo-charge your principal reduction and thereby reducing the overall term of your loan.

Paying down the mortgage also brings control and security. It becomes your ultimate emergency fund and buffer against job loss or downturns. That reduction in financial anxiety is invaluable.

The Engine: Oiling Your KiwiSaver

This doesn’t have to be an all-or-nothing choice between your mortgage and KiwiSaver.

KiwiSaver has incentives every family should take advantage of. For the first $1,042.86 you contribute personally each year, the Government gives $260.72. That’s an instant 25% return, which is hard to beat (no matter what those crypto bros on YouTube claim).

Beyond that, your employer will also match your contributions up to 3% (rising to 3.5% next year), but only if you’re contributing.

“At a bare minimum, you should still be meeting the requirements to get these funds,” says Boyle. “Suspending KiwiSaver is like taking a 3% drop in your income.”

KiwiSaver is the engine you should keep well-oiled throughout your working life. If it’s in good shape at retirement, it gives you the financial power to steer through those years.

From a pure investment perspective, a well-managed fund can deliver higher returns than your mortgage rate over the decades. Sorted notes the average balanced fund has grown at 6% in recent years, higher than the 4.49% return from paying off your mortgage. However, this comes with risk, since past performance is no guarantee of future returns.

The Lifejacket: Your Emergency Fund

The problem with putting money into your mortgage or KiwiSaver is that it’s difficult to access if you suddenly need it.

So, no matter what you decide, it’s important to maintain a financial lifejacket in the form of an emergency fund. This should cover three to six months of expenses if you lose your job or can’t work, Boyle advises.

Depending on the amount, you can either keep this as cash in a savings account or place it in a low-risk managed fund where it can accrue value (remember to always check the small print about how quickly you’ll be able to withdraw your investment from a managed fund).

The Jetski: Diversify Your Wealth

Once you have a good anchor (mortgage), a well-oiled engine (KiwiSaver), and a sturdy lifejacket (emergency fund), you can start to diversify.

During the recent era of painfully high rates, term deposits offered decent returns.

“It was a really smart play just to harvest those high returns,” says ASB chief investment officer Frank Jasper. “You could take a saver’s mindset and generate some decent wealth.”

But now, with rates falling, the mindset has to shift.

You need to compare the real returns you can make from different investments, Jasper says. That means weighing the benefit of paying off your mortgage faster against investing elsewhere. It requires a more analytical approach.

Previously, most New Zealanders derived family wealth from house prices rising indefinitely. But that’s no longer guaranteed. Four walls and a roof can only make you so rich on paper. Anything beyond that depends on where you put additional funds.

Debt itself isn’t bad, Jasper stresses. It depends on the kind of debt you have.

If you’ve managed to bring your mortgage down to where you only owe 20–30% of the principal, you could be in a strong position to start making returns from other investments, he says.

Ultimately, it comes down to how much risk you’re comfortable with and what you want to achieve.

The main takeaway: there is no single compass for everyone. It depends on what your boat already has and what it’s lacking. There’s no quick fix. That said, it’s the people who make informed decisions, choose their destination and take the long-term view who are best able to build their wealth.

*This name has been changed to protect the family’s privacy.